Safe haven, near-term
V. Anantha Nageswaran
Singapores general elections turned in a result that was not widely anticipated. The ruling Peoples Action Party (PAP) retained power with a much improved vote share. Under the present circumstances locally, regionally and globally, it is a positive outcome for the islands economy. It has opened up some policy space for the government, at the margin, to relieve the growth straitjacket. Given Singapores electoral landscape and system, the overall outcome was never in doubt, but the margin of victory was. Singapore does not allow any opinion polls to be published. Hence, most of the speculation about the margin of victory was through social networks and conversations. By that yardstick, it was expected that the PAP would either narrowly maintain its vote share from the previous election held in 2011 or see a lower margin. Open for discussion too was the speculation on whether the PAP would lose one or more group representation constituencies (GRCs). In the end, the PAP increased its vote share from around 60per cent in 2011 to nearly 70per cent in 2015 and did not lose any more GRCs than the one it lost in 2011.
Since the last general election, the government had tightened rules on immigration, sought to lower the number of permanent residencies awarded to foreigners, increased salary limits for employment passes to be issued to foreigners and acted to curb the rise in property prices.
At the same time, massive public works in terms of improving the urban transportation network were undertaken. Singapores economic growth had been, for the most part, lacklustre in these four years. Of course, it is difficult, if not impossible, to attribute causality to government policies for the stagnation. Surely, they are a part of the explanation but not the whole story.
Singapore is a bellwether for the global economy and remains so, even though its role as the entrept for the region has dimmed over the years. Global growth rates have been disappointing in the last several years. Further, regional economies have slowed down, particularly China, India and Indonesia. They have been weighed down by excess debt accumulation or excess investment in the aftermath of the global crisis of 2008. Growth in world trade has been disappointing. It is no surprise that Singapores economy has been experiencing sluggish growth, driven primarily by financial services and construction activities, mostly due to public investment.
Had the PAP been returned to office with a lower vote share, it would have resulted in a continuation of the governments restrictive and populist economic policies. Economic growth would have been hurt more. Their efficacy in delivering the social and economic outcomes that the government has been seeking has not been established, while the costs have become manifest, in terms of lower growth, shortage of manpower in key staffing areas like nursing and accounting. While international evidence is overwhelming that restructuring happens only in difficult times, it is true that restructuring is rendered more difficult by the absence of economic growth. For a small, open economy to tighten the domestic property sector while global trade sagged was to sign away economic growth without any resistance. The election result may allow the government to provide some safety valves so that it could continue with its economic restructuring.
Restructuring effortsregardless of the ultimate outcomeare a multi-year process for any economy, whether small or big. Singapore has to restore its manufacturing sector to competitiveness, particularly in high value-added segments. The government had hoped to see lighter manufacturing to the Iskandar economic zone across the border in Malaysia. However, premature property speculation, political troubles and the resulting economic uncertainty have clouded the outlook for such a transition to happen. Therefore, it has become doubly important for the Singapore government to provide more relief for domestic manufacturers and property markets.
It is expected that the government would relax some of the curbs on the property sector, such as lifting the low loan-to-value ratios for second homes, reducing the stamp duty, abolishing the sellers stamp duty, etc. Further, the government may relax the restrictions on the import of foreign labour in critical areas, although only gradually. The government is unlikely to open the floodgates for immigration. Overall, the populist policy framework will remain, but may be loosened at the margin.
Overall, what has happened is that the incumbent government has retained power. In that sense, it is business as usual. The crucial difference is the improved vote share. In the final analysis, it may not amount to much because the global and regional economic outlooks have become much more uncertain in the meantime. However, what is undeniable is that a less favourable outcome for the ruling party would have added to the concern over near-term economic prospects and raised existential questions over the Singapore model. That has been postponed for now. Under the circumstances, it is no bad thing. Investors can use the Singapore dollar as a safe haven, for now.
Livemint
